Iceland's third largest pension fund

Gildi is Iceland’s third largest pension fund. The Fund operates in two divisions; a mutual pension division and a private pension division. Net assets of the mutual pension division available for pension payments amounted to ISK 467,576 million at year end 2016. Net assets of the private pension division available for pension payments amounted to ISK 4,111 million at year end 2016. Gildi has 33 employees with many years’ experience and extensive knowledge in the field.

In the year 2016, 5,449 employers paid premium to the Fund in the total amount of ISK 19,354 million for 50,582 fund members. Fund members in the mutual pension division with pension rights at year end numbered 216,896. The number of fund members for the Fund’s private pension division at year end was 36,177.

The Financial Supervisory Authority is the regulatory body responsible for monitoring the operation of the fund, in addition to internal and external auditing by a third party.

Rules on loan provisions to Fund members

1. Entitlement to borrow
The applicant must have paid premiums into the Gildi Pension Fund, either the mutual insurance division or private supplementary divisions.

2. Interest and indexation
Borrowers may choose between indexed and non-indexed loans or a combination thereof. Indexed loans are available both with fixed interest and with variable interest. Non-indexed loans are available with variable interest. It is possible to choose between loans with annuity payments or regular instalments. Loans are divided into basic loans and supplementary loans according to the mortgage ratio. Basic loans assume a mortgage of up to 65% of the value of the property in question. The supplementary loan is the proportion of the loan that is between 65–75% of the value of the property.

2.1 Basic loan, up to 65% of the mortgage ratio

2.1.1 Indexed loans with fixed interest: The fixed interest rate is based on the date of issue of the bond and is currently 3.55%. The loans are indexed based on the consumer price index.

2.1.2 Indexed loans with variable interest: The variable interest rate at present is 3.05%. Interest rate terms can change over the course of the loan period according to the decisions of the Board of Directors of the Fund. Account is mainly taken of the required rate of return of listed indexed bonds with state guarantees, market interest rate terms for comparable loans and the Fund’s risk assessment when determining interest rates. The loans are indexed based on the consumer price index.

2.1.3 Non-indexed loans with variable interest: The variable interest rate at present is 5.55%. Account is mainly taken of the policy rates of the Central Bank of Iceland, interest rates on deposits, the required rate of return of listed indexed bonds with state guarantees, historical and expected inflation, market interest rate terms for comparable loans and the Fund’s risk assessment when determining interest rates.

2.2 Supplementary loan, 65–75% mortgage ratio

2.2.1 Indexed loans with fixed interest:The fixed interest rate is based on the date of issue of the bond and is currently 4.30%. The loans are indexed based on the consumer price index.

2.2.2 Indexed loans with variable interest: The variable interest rate at present is 3.80%. Interest rate terms can change over the course of the loan period according to the decisions of the Board of Directors of the Fund. Account is mainly taken of the required rate of return of listed indexed bonds with state guarantees, market interest rate terms for comparable loans and the Fund’s risk assessment when determining interest rates. The loans are indexed based on the consumer price index.

2.2.3 Non-indexed loans with variable interest: The variable interest rate at present is 6,30%. Account is mainly taken of the policy rate of the Central Bank of Iceland, interest rates on deposits, the required rate of return of listed indexed bonds with state guarantees, historical and expected inflation, market interest rate terms for comparable loans and the Fund’s risk assessment when determining interest rates.

2.2.4 Condition on mortgage: Supplementary loan is only granted if Gildi Pension Fund has granted all other loans with priority security ranking on the same property. It is permitted to grant an exception from this rule if loans from other lenders are within 20% of the value of the property.

Interest rates on Gildi fund member loans

Basic loan
(up to 65% mortgage ratio)

Supplamentary loan
(65-75% mortgage ratio)

Indexed, variable interests

3.05%

3.80%

Indexed, fixed interests

3.55%

4.30%

Non-indexed, variable interests

5.55%

6.30%

3. Loan amount

3.1 The minimum loan granted by the Fund is ISK 1,000,000.

3.2 The maximum amount takes account of mortgage limits, as provided for in Article 5.4, and an assessment of the borrower’s payment ability and creditworthiness, as provided for in Article 6.

4. Loan term and settlement

4.1. Loan periods are between 5 and 40 years, at the choice of the borrower.

4.2 Instalments are paid twice a year, or more frequently, at the choice of the borrower.

4.3 The loan may be paid in full or in part without the imposition of a prepayment fee.

5. Property liens

5.1 Loans are only provided in exchange for a lien on the residential housing of the borrower. Loans are not provided for the purchase of property for commercial purposes, such as renting.

5.2 If the residential housing to be mortgaged to secure the loan is also partly or wholly owned by the spouse of the Fund member, a person cohabiting with the borrower, a person with whom the borrower is in a registered partnership, or partly owned by parents, such person must be the co-borrower (co-debtor) of the requested loan.

5.3 The Fund may also grant a loan to the parent of a Fund member in exchange for a property lien on his/her residential property.

5.4 The mortgage ratio may not exceed 75% of the assessed market value of the property. The assessed market value is based on a recent purchase agreement, an official real estate valuation or the valuation of a certified real estate agent selected in consultation with the Fund. The cost of such assessment must be paid by the borrower. Mortgages, however, may never exceed 100% of the property’s fire insurance assessment and site valuation.

5.5 Buildings under construction are considered eligible as security for loans, provided that a certificate of weather tightness and fire insurance certificate, together with the valuation of a certified real estate agent selected in consultation with the Fund, is provided.

5.6 Loans may be granted in exchange for a lien on property subject to the provisions of legislation on social assistance housing, provided that at least 15 years have elapsed from the issue of the conveyance of title to the owner or any encumbrances have been lifted.

5.7 Loans are not granted if the property assessment or valuation is less than ISK 7,000,000.

5.8 It is permitted to limit or decline a loan if the property resale options are limited or if there is uncertainly, on other grounds, regarding property value, for example with respect to the condition of the property.

6. Assessment of payment ability and creditworthiness
According to Article 10 of Act No. 33/2013 on Consumer Loans, the Pension Fund is generally under obligation to perform a payment ability assessment on the applicant. The Pension Fund, moreover, according to the provisions of the same Article of the same Act, is under obligation to obtain information on the creditworthiness of the applicant. The Pension Fund may deny an application for a loan or limit the loan amount in the event that a creditworthiness and/or payment ability assessment reveals that the applicant does not have the financial strength to repay the loan.
If the mortgage ratio exceeds 65% of the property value,a payment ability assessment is required. A payment ability assessment is also generally required if loans with security interest in the relevant property (including the new loan) exceed ISK 20,000,000. All rights are reserved to request a payment ability assessment on other grounds if Gildi Pension Fund deems necessary.

7. Borrowing costs
The loan fee is a fixed amount, ISK 48,000. Each additional bond has an incremental cost of ISK 7,000 due to document preparation. The borrower pays the cost of payment ability assessments, creditworthiness assessments and property valuations. The borrower is responsible for paying registration fees, as well as any bank collection costs.

8. Duty to inform the applicant
According to Article 7 of Act No. 33/2013 on Consumer Loans, the Pension Fund is under obligation to provide the applicant with information on the terms of the prospective loan on a standardised form. An example of such standardised form may be found on the website of the Fund.

9. Loan application
The loan application form must state what documentation must be provided for the application to be considered valid. The applicant’s signature permits the Fund to seek information on the applicant’s payment ability and creditworthiness, as provided for in Article 10 of Act No. 33/2013 on Consumer Loans.

10. Lead time of loans
The processing of loans, by Gildi Pension Fund, can take up to 3 weeks after satisfactory documentation has been delivered to the Fund. After a loan has been approved, a bond is issued by the applicant and it must be registered on the property by the District Commissioner. Bonds are purchased (paid out) after registration by the District Commissioner.

11. Other
Gildi Pension Fund reserves the right to decline applications on any grounds.

11. Entry into effect
These rules shall enter into effect as of January 5th 2018.

The Fund reserves the right to investigate the borrower’s position on Creditinfo’s defaulters’ list.

The response to your loan application will be made by telephone or e-mail when all the necessary documentation has been delivered to the fund and reviewed.

By law, all wage earners have the right and the duty to be members of the pension fund of the profession in question. Employers likewise have the right and the duty to withhold premiums from the wages of wage earners and submit to the pension fund together with their matching contribution.

Premiums to the pension fund

Premiums to the pension fund are minimum 12% of total wages, i.e. income from day time work, extra work, night work, supplemental payments and holiday payments. Fund members aged 16-70 pay 4% of their entire wages to the fund and employers pay minimum 8%.

Fund member monitoring of premium deposits

Fund members are encouraged to monitor that their premiums are deposited in the pension fund. The fund issues a statement twice a year, in March and September, showing the deposits made to the fund. The statement shows the total points earned by the fund member together with an itemisation of the payments made since the last statement was issued. Fund members should compare these statements with their pay slips to make sure that the correct amounts have been deposited.

If no statement is sent from the fund, this may indicate that no deposits have been made. Entitlements can, therefore, be lost if the fund is not notified of the suspected default of deposit. The fund member bears great responsibility in this respect. Fund employees monitor premium deposits but no-one is more capable of doing so than the fund member. The rights of fund members to a pension are calculated in Icelandic króna. The rights are subject to the premium deposited in the fund each time.

Payments to the fund begin when the wage earner has reached the age of 16 (in the next month after the birthday month). When the fund member reaches the age of 70, he stops paying a premium to the fund (last payment in the birthday month), given that the member does not earn pension rights after that time.

Trade unions

Gild – Pension Fund has undertaken to collect premiums for the following trade unions:

• Efling stéttarfélag

• Félag hársnyrtisveina

• Verkalýðsfélagið Hlíf

Employers are under obligation to withhold from the wages of employees their union fees for the union in question in accordance with the rules stipulated in collective wage agreements.

Employers are also under obligation to make payments into the sickness fund, holiday allowance fund and vocational training fund of the said unions the premiums that the entities in the labour market negotiate from time to time and in accordance with the rules stated in collective wage agreements.

Further information for employers as regards premiums may be found on the website Eflingar stéttarfélags. Press here.

Rehabilitation fund

Employers, including independent employers and those who are not members of unions, are under obligation to pay 0.10% of the total wages of all their employees to VIRK Rehabilitation Fund. The payment obligation was adopted as of 1 September 2011 with the amendment of Act No. 129/1997 on Mandatory Insurance of Pension Rights and on Activities of Pension Funds.

Fund members can begin withdrawing their retirement pensions between the age of 60 and 70.

The pension is paid monthly, at the end of the month.

Payments are adjusted according to changes to the consumer price index. The monthly pension amount decreases if pension withdrawal begins before the age of 67 and increases if withdrawal is delayed. However, there are no further increases to the amount after the age of 70.

The retirement pension is paid to the end of life, in accordance with earned rights, and is independent of other payments pensioners may be entitled to.

Disability pension

Fund members who have been assessed with at least 50% disability for a minimum of six months may be entitled to a disability pension. This is conditional on the fund member having suffered a loss of income as a result of the disability.

Disability pensions are paid monthly, at the end of the month. The payments are adjusted according to changes to the consumer price index.

Disability pensions are paid for a specific period, based on the assessment of a physician, and the disability is regularly reassessed. If the disability is assessed as permanent, the disability benefits will change into a retirement pension at age 67.

Disability pensions are income-linked. An income review is carried out every three months. This review will compare the person’s total income over the past year and the income according to tax returns submitted in the four years prior to the assessment of disability. If the recent income is higher than the income that the person had before receiving disability payments, the disability benefits will be decreased or discontinued.

If a fund member dies and leaves a surviving spouse, the spouse is entitled to a spouse’s pension.

A spouse is the person who is either married to or cohabiting with the fund member. For cohabiting partners, the cohabitation must have continued for at least two years before the fund member’s demise.

The spouse’s pension is generally 50% of the fund member’s rights and is paid in full for three years and then at half that amount for two years. If the surviving spouse is disabled, however, a full spouse’s pension is paid to age 65. A full spouse’s pension is also paid when there are children who are supported by the spouse, and who were previously dependent on both, until the youngest child reaches the age of 20.

If the spouse remarries, or embarks on a cohabitation that can be regarded as the equivalent of a marriage, the spouse’s pension is cancelled.

Children’s pension

If a fund member dies and leaves children under the age of 18, they may be entitled to a children’s pension. The condition is that the fund member in question must have paid into the fund for six of the past twelve months, two of the past three years, or enjoy a retirement or disability pension from the fund.

The children of disability pensioners may also be entitled to a children’s pension. If the fund member has paid into more than one pension fund over the four years prior to the assessment of disability, the children’s pension will be divided proportionately between them.

Pension rights in many pension funds

As membership of a pension fund is governed by profession, many people pay into more than one pension fund. When beginning to withdraw a pension, in most cases it is sufficient to apply to the fund that has been paid into most recently. This fund will then contact any other funds and send them the appropriate information.

Private pension savings are a very good option for increased pension savings and something that everyone should take advantage of. Those who contribute 2-4% of their wages are entitled to a 2% contribution from their employer, according to most collective wage agreements.

The advantages of private pension savings

The matching contribution from the employer, together with a deferral of tax on deposit, means that no other form of savings plans can compare with private pensions. The advantages include:

• Tax benefits – the private pension payment is not taxed on deposit

• A contribution from the employer

• No capitals gains tax or net worth tax

• It does not curtail either child benefits or interest benefits

• The savings are inheritable

• It’s an easy form of saving – the employer is responsible for the regular payment of the savings

• An agreement can be reached on the division of entitlements between fund members and spouses